While September had been a bit sloppy, will further weakness in October weigh on investor sentiment before the seasonally strong period begins? As shown by the S&P 500 index seasonality chart below, weakness in the last two weeks of September and the first two weeks of October is common. However, we must also understand that the big down move in the market during that period came from historical crashes such as the “Financial Crisis” in 2008. Excluding those periods, the market still tends to be weak but more flat in nature.
Just as a reminder, the historical analysis suggests summer months of the market tend to be the weakest of the year. The mathematical statistics prove this as $10,000 invested in the market from November to April vastly outperformed the same amount invested from May through October. Interestingly, the max drawdowns are significantly larger during the “Sell In May” periods. Previous important dates of major market declines occurred in October 1929, 1987, and 2008.
So far this year, the May through October period remains about average, with a return through last Friday of 6.74%. Even if there is some additional weakness, the overall period should still be a “win” for investors. However, as noted, the weakness came a bit late this year, with a 5%ish correction starting in August.
However, this is a bit deceiving. As we noted previously, much of the gain in the market this year has come from essentially ten stocks that have the largest concentration, in terms of market capitalization, in the index. The surge in those stocks has skewed the performance of the broad market index. The performance of the bottom 490 stocks remains markedly different.
We will have to wait and see what the rest of 2023 brings us, but if the past is a glimpse at the future, odds are great we should rally into the end of the year.
Source: Real Investment Advice
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.
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